Legal aspects of running Cardano pool for US company

Hi guys, we’re excited to be running Cardano pool and staking for our own ADA assets, but before we open to public, I have couple KYC related questions:

  1. do we as a pool operators see the addresses that staked their ADA with us?
  2. if so, do we see any other identifying information i.e. IP addresses
  3. do the rewards come from the pool (operated by us) or from the distributed network itself (out of our control)?
  4. do we have the ability to reject certain stakers?

Given the fact people could be staking from anywhere around the world, I simply want to make sure we comply with all US laws regarding doing business with foreign entities.

Any light shed on this would be truly appreciated.

Hello and welcome aboard!

  1. do we as a pool operators see the addresses that staked their ADA with us?

Yes, u will be able to identify the wallet address/stake

  1. if so, do we see any other identifying information i.e. IP addresses

No other informations beside wallet address/stake

  1. do the rewards come from the pool (operated by us) or from the distributed network itself (out of our control)?

From the network, the pool rewards will go to the pool wallet and the rewards for delegators will be redistributed automatically to delegators

U as a pool owner have the power to decide how much rewards will be shared with the delegators (margin 0% meaning all rewards (not the pool cost -340ADA) will be distributed to the delegators; 100% margin - no rewards for delegators)

  1. do we have the ability to reject certain stakers?

Nope, there is no such option available

Cheers,

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Thanks Alex, any chance you can point me to sources so this can be confirmed independently?

You might be able to confirm some below:

https://cardano.org/stake-pool-delegation/

Though it gets dense, the intricacies of these things require some explaining… you might find your answers in the documentation at docs.cardano.org.

Alex’s answers are good, but to confirm this you need to understand what the node software does, which pretty much boils down to participating in Ouroboros, the Proof of Stake protocol being designed by IOG. There is a blog post from last year about the protocol versions and evolution which may be helpful here.

As a business, running this protocol is the primary activity a basic pool is engaging in, so you should have a thorough understanding of what that means. You are being distributed tokens by an algorithm, not by any particular party, and your interactions with delegates are pretty limited as stated in Alex’s response. It’s also not entirely clear what all the regulations for these kinds of protocols are going to be or how they might change so I would keep a watchful eye out for those developments.

Since there is not a control mechanism for even determining what region an address is from, let alone an IP or other identifying info, there isn’t much control over who delegates to your pool.

That said, there are technologies being championed by IOG et al such as Atala PRISM which promise to establish a framework for digital identities issued e.g. by local institutions that can be integrated into blockchain elements like addresses in order to permit a system that is more compliant with regulatory requirements while (hopefully) preserving public privacy of sensitive personal data. You might be interested in learning about PRISM and DIDs (digital identities) in general for this reason.

Hope that’s helpful :slight_smile:

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This is a good question and unfortunately we do not see a lot of compliance issues being discussed between SPO’s. My understanding is that running a Stakepool is pretty much an unregulated activity at the moment but who knows in the future. While not managing any client funds in any way there may be issues around AML and as you say with regards to where the stake comes from. Going forward I think all SPO’s will have to be vigilant with regards to AML and KYC responsibilities and also data privacy issues. I would imagine that may also be legal implications with regards to reward payments. What happens if someone delegates 20 million ADA to you and you fail to mint your blocks? I don’t know but maybe we have to be thinking about insurance - however good luck in getting that in the crypto industry as it took me 6 months just to get a corporate bank account. Also setting up a private limited company may need to be considered to protect your personal assets. I am not a lawyer or a financial advisor and these are certainly areas that I am not proficient in but they are areas that warrant discussion.

This is a healthy discussion. Should Stake Pool operators understand KYC and AML regulations? My view is we are providing data processing services not exchanging money or giving financial advice.